Cit vs Bharat Commerce & Industries Ltd.
2001 Latest Caselaw 1098 Del

JUDGMENT

Arijit Pasayat, C. J.

At the instance of revenue, following question has been referred for opinion of this court under section 256(1) of the Income Tax Act, 1961 (in short the Act), by the Income Tax Appellate Tribunal Delhi Bench D, Delhi (in short Tribunal) :

"Whether, on the facts and circumstances of the case, Tribunal was right, in law, in directing the Income Tax Officer to determine the question of deductibility of expenditure incurred by the assessed on its employees, etc. stay outside their headquarters during periods spent in actually conducting the business of the assessed, with reference to the provisions of section 37(1) and without considering the inhibition contained in section 37(3), Income Tax Act ?"

Dispute relates to the assessment year 1975-76.

2. Brief reference to the factual aspects would suffice.

2. Brief reference to the factual aspects would suffice.

For the concerned assessment year assessed had filed its return declaring income of Rs. 4,14,21,290 as per original return dated 30-6-1975. Subsequently revised return was filed on 3-9-1977, disclosing income of Rs. 3,63,96,600. The Income Tax Officer proposed to complete the assessment at total income of Rs. 4,53,00,263. Therefore, the matter was referred to the Inspecting Assistant Commissioner. Ultimately assessment was completed at a total income of Rs. 4,41,92,981. Income Tax Officer added a sum of Rs. 1,01,006 by disallowing a part of the traveling allowances claimed, on the ground that the claims were beyond the limits prescribed in rule 6D of the Income Tax Rules, 1962 (in short Rules). The matter was challenged before the Commissioner (Appeals). Said authority noticed that though initially the assessed had offered the amount in question for addition on the ground that it exceeded the limit prescribed under section 37(3) an objection was raised on receipt of the draft order. Inspecting Assistant Commissioner turned down the objection while dealing with the matter under section 144B. assesseds contention before the Commissioner (Appeals) was that the expenses incurred by the assessed on the lodging, etc. of an employee during his stay outside the headquarters of the employee after the employee had reached the appointed destination, could not be said to be traveling expenses within the meaning of section 37(3). Commissioner (Appeals) did not accept said contention. He took the view that in normal parlance a person is stated to be traveling or on tour till he returns to his headquarters, where he is posted. Matter was carried in appeal before the Tribunal. Stand of the assessed was reiterated before it. Tribunal gave the following directions, inter alia, while remanding the matter back of the Income Tax Officer :

"In the view that we have taken, we consider it necessary to remand the matter to the Income Tax Officer for fresh decision according to law as to the admissibility of expenditure in question after taking into account the periods spent by the employee, etc. outside his headquarters actually in connection with conducting the business of the assessed as elucidated hereinabove. The deductibility of last said expenditure would have to be determined with reference to the provisions of section 37(1) without considering the inhibition contained in section 37(1)."

On being moved for reference, the question as set out above has been referred for opinion of this Court.

3. We have heard learned counsel for the revenue. There is no appearance on behalf of the assessed.

3. We have heard learned counsel for the revenue. There is no appearance on behalf of the assessed.

According to learned counsel for the revenue, claim under section 37(1) of the Act is subject to the limits prescribed in terms of section 37(3). Though the claim is allowable as revenue expenditure yet the limit up to which it can be allowed is set out in rule 6D of the Rules as prescribed under section 37(3) of the Act. Consequentially the limits prescribed under rule 6D are applicable when claim under section 37(1) of the Act is considered. Rule 6D read with section 37(3) prescribe the allowable limit for the expenditure, No reason has been indicated by the Tribunal as to why it felt that the provisions contained in section 37(3) were not applicable to the facts of the case. That being the position, we direct that while carrying out the direction of the Tribunal, Income Tax Officer shall also take into account the effect of section 37(3) of the Act read with rule 6D of the Rules.

Reference is accordingly disposed of.